Negotiable Instruments Act - Legal Environment of Business

Negotiable Instruments ActLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – [email protected]

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Definition

The word ‘negotiable’means transferable bydelivery and instrumentmeans a written documentby which a right is created infavorable of some person.The term negotiableinstrument thereforeliterally means a documenttransferable by delivery.

Definition

Section 13 (1) of theNegotiable InstrumentsAct states that “ ANegotiable Instrumentsmeans a promissory note,bill of exchange or chequepayable either to order orto bearer.”

Definition

• Negotiable instruments

recognized by statute are

only of three kinds:

– Promissory Notes.

– Bills of exchanges.

– Cheques.

Characteristics of negotiable instrument

• Property.

• Freely transferable.

• Title of holder free from all defects .

• Recovery.

• Presumption.

• Prompt payment.

• As good as cash.

• Transferability.


• Property – The possessor of

the negotiable instrument

is presumed to be the

owner of the property

contained therein.


• Freely transferable – The

property in a negotiable

instrument can be

transferred without any

formality.


• Title of holder free from all

defects – A bonafide

transferee for value is not

affected by any defect of title

on the part of the transferor

or any of the previous holders

of instrument.


• Recovery – The transferee of

the Negotiable Instrument can

sue in his own name, in case of

dishonor for the recovery of the

amount.


• Presumption – Certain

presumptions apply to all

negotiable instruments. Ex : A

presumption is that

consideration has been paid.


• Prompt payment – A negotiable

instrument enables the holder

of the instrument to expect

prompt payment.


• As good as cash – A negotiable

instrument is a document but it

is as cash since cash can be

obtained. It is a contract to pay

money.


• Transferability – A negotiable

instrument can be transferred

any number of times till it is at

maturity and holder of the

instrument need not give any

notice of transfer to the debtor.

Kinds of negotiable instruments

1. Inland instrument.2. Foreign instrument.3. Ambiguous Instrument.4. Inchoate instrument.5. Accommodation bills.6. Fictitious bill.7. Bearer instrument.8. Order instrument.9. Instrument payable on demand.10.Instrument payable at a future time


Inland instrument – Apromissory note, bill ofexchange or a chequedrawn or made in Indiaand made payable, in ordrawn upon any personresident in India, shallbe deemed to be aninland instrument.


• Foreign instrument – AForeign instrument isone which is not aninland instrument.Example: A bill drawn inIndia and made payablein London.


• Ambiguous Instrument– When an instrumentowing to its faultydrafting may beinterpreted as apromissory note or abill, then it is called anambiguous instrument.


• Inchoate instrument – Itis one which is anincomplete instrument,for example, notmentioning the amountpayable or leaving blankthe name of the payee.


Accommodation bills –When a bill is drawn,accepted or indorsedwithout anyconsideration, it iscalled anaccommodation bill.


• Fictitious bill – Whenthe name of thedrawer or the payee orboth is fictitious in abill, the bill is called afictitious bill.


• Bearer instrument –When in a negotiableinstrument, it isexpressed that theamount is payable to thebearer or when the onlyor last endorsement isan endorsement inblank, the instrument isa bearer instrument.


• Order instrument – Whenin a negotiable instrument,it is expressed that themoney be payable to orderor when it is expressed tobe payable to a particularperson and does notcontain words prohibitingor restricting its transfer,the instrument is calledorder instrument.


• Instrument payable ondemand – When no timeis specified on apromissory note or bill,then it is treated aspayable on demand.Cheque is alwayspayable on demand.


• Instrument payable at afuture time – A bill or anote is payable at afuture time if it is statedto be payable at a fixedperiod after its date orafter sight or after anevent which is certain tohappen.

Date post:	14-Jul-2015
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Negotiable Instruments Act - Legal Environment of Business

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